There are only a few weeks left until summer, a time when expenses skyrocket for the holidays. This year, the summer period coincides with a relaxation of the strong restrictions on mobility and social interaction imposed by the pandemic and a return to an almost old normality, which will be accompanied by an increase in consumption.
Credit cards are the great ally of consumers and more in a crisis situation, in which “they can serve to alleviate the lack of money of many family units, especially if access to credit is hardened”, points out Antonio Gallardo, financial expert in iAhorro. However, consumer associations warn of the risks of these debts and especially those contracted with the so-called cards revolving.
What is the difference between a credit card and a ‘revolving’?
Those who use a credit card to pay for a purchase, postpone the payment for the following month without any surcharge. In the case of revolving, the payment must be deferred in several installments and it is the client who decides the amount or the percentage of the debt incurred that he pays month by month. This entails the payment of interest.
To differentiate them from a credit card, Gallardo points to the high credits they make available (above 5,000 euros), the default choice of installment payments and that this payment has very low fees. “Technically speaking, it is a hybrid financial product between traditional credit and personal loan,” explains Fernando Renedo, founding partner of Reclama Por Mí.
However, consumer associations point out that a trend is taking place whereby cards marketed as credit cards become revolving subsequently because the consumer requests it or because the entity agrees with the customer the change.
What risks does its use have?
The cards revolving They have very high associated interests that mean that, since the monthly fee paid is so low, the monthly payment does not amortize the debt contracted and it continues to grow. “For example, if we buy for 1,000 euros on credit revolvingIn a short time, we already owe that same amount in interest, “says Patricia Suárez, president of Asufin.
According to the latest data from the Bank of Spain, corresponding to March, the average equivalent annual rate (APR) of credit cards in Spain is 17.9%. But these estimates are well below that charged by some firms, because, according to Adicae, there are more than 200 cards with an APR that reaches up to 30%. The III Asufin revolving barometer shows a reduction in interest rates in recent months that, however, is not reflected in the final APR (around 22.84% in the main cards on the market) due to higher issuance costs. In addition, if the client chooses to use it to withdraw cash from an ATM, the APR reaches 27.99%, according to Asufin.
Added to the high interest rates is the fact that as the customer repays the debt, the credit is available again. “These two factors can cause this debt to be considerably prolonged over time, becoming a spiral,” says Renedo.
Is it legal to impose such a high interest rate?
There are several judgments that have described these products as not very transparent and labeled their interests as abusive. In fact, in Adicae they recall that in a March order, the EU Court endorsed the doctrine of the Supreme Court to annul card contracts revolving for being declared as “usury” when they exceed a certain interest rate.
The association has made available to consumers a model type of claim to request from the financial institution “the cancellation of the credit contracted as well as the restitution of the irregularly collected”, since it has seen that “half of the users do not know the conditions real of these products “and others are unaware that they have contracted a card revolving.
“The regulations approved in 2020 to improve the commercialization of these products gave more transparency in some aspects to the information that is passed on to the consumer when hiring them but, in our view, it is not enough,” says Suárez. “For example, the obligation to repay a minimum of 25% of the total owed was not implemented,” he stresses.
What entities sell them?
Between the revolving that Adicae has identified with APRs of up to 30%, there are cards distributed by financial entities, large commercial areas and energy, telecommunications or fuel distributors, among many other companies, they explain. Likewise, they also point out that “there are cards with these characteristics linked to social works or NGOs.” In these cases, they explain, “normally a percentage of the interest charged is offered as a donation to an NGO or disadvantaged group.”
Knowledgeable hiring. The National Association of Credit Financial Establishments (Asnef) has launched a credit transparency protocol revolving, that is, a document that the entities will deliver to customers who are interested in these products to inform them of all their implications. At Asufin they value the initiative because “the more information the consumer has, the better able they will be to make an appropriate decision”, but they consider that “the product itself is too complex to benefit from its alleged advantages.”